As you start to type after the @ sign, you will get a list of matching users. It's a good idea to select from this list to ensure you have got the correct spelling.

The person you tag will get an alert, with a link to the post.

You don't need to tag someone if you are replying to their post, as they will get an alert for that anyway, and generally people who have participated in a thread will be subscribed to it and will get an alert also.

To get alerted to tags, you need to have the appropriate preference set:

Is this an addon you download or was it something you wrote in yourself?

I ask because I'm trying to get this feature added onto a gaming forum I use for an MMO emulator and this feature would be very helpful in the trade forums there. Just trying to get some info before I make a post about it there in an attempt to get other players talking about the idea. I made an official request for it but the people running the game/forum are busy people and this kind of thing is far down the list of things to add/fix. If it's something as simple as a download they might be more incline to move it up on the list. The forum software they use is vBulletin® Version 4.1.5 I searched through their website but couldn't find anything to do with tagging.